A strengthened relationship between electricity and economic growth in China: An empirical study with a structural equation model

Abstract

Many empirical studies have examined the causal relationship between electricity consumption and economic growth. Given the significant role of China in global economic growth and electricity use, this study analyzes the multiple causal mechanisms underlying the electricity consumption-economic growth nexus in China using a structural equation model and comparing the nexus with national-level data from 1978 to 2019. This study contributes to the understanding of the direct and indirect causal mechanisms between the electricity consumption-economic growth nexus. We find: (1) the nexus has strengthened with time, and the direct and indirect effects from electricity consumption to economic growth have also increased with time; (2) indirect influences of electricity consumption on economic growth are stronger than the direct influence; and (3) increasing ecological awareness brought about by economic growth increases the demand for electricity generation from clean energy sources. Therefore, the Chinese government should formulate policies to facilitate high-quality electricity production to meet the increasing demand from economic growth. © 2021